The Precious Metals Market: Moving Beyond Traditional Investments

You don’t have to look far to find reams of advice on investing in the stock market, but when it comes to diversifying your investments and spreading your money into the precious metals market, the (legitimate) information tends to dry up. This relative lack of popularity leads many to make the mistaken assumption that something must be wrong with investing in gold, silver, and other precious metals. This isn’t helped by the glut of scam artists and opportunists out there who make investing in gold sound like a fad you need to get in on today before we go into a global depression. This kind of hype may convince conspiracy theorists to buy a couple of gold bars, but it only strengthens the skeptical in their view that precious metals are a fool’s game.

Unfortunately, countless ads that place gold investments somewhere in the same sphere as commemorative Elvis plates in the minds of many have done investors a tremendous disservice. One need only look past the hype to see that investing in precious metals can be a big part of a thoughtful investment strategy. One need not choose to invest in the precious metals market over the stock market, of course. To believe that some kind of choice must be made is to fall for the hype again. The most successful investors in history have always been conscious of the importance of diversification. The phrase “don’t put all of your eggs in one basket” applies not only to making sure you don’t put all of your money in one company’s stock, but also to the very markets you invest in.

Why does the wise investor move beyond the stock market? The last decade makes the case as clearly as any article ever could. To understand why diversification is important, you have to realize that you’re talking about not just two different areas of investment, but two different types of profit altogether. When you invest in stocks, you’re buying equity in a company. When you invest in precious metals, you’re dealing in commodities, which means you’re buying a physical, distinct thing. It’s the difference between backing someone in a gambling tournament and buying the casino. Both can be profitable, but the benefits will come from different sides of the spectrum.

Of course, the veteran stock market investor will find many aspects of the precious metals market familiar to them. You make money investing in gold and silver when demand for those metals increase. Investors on Wall Street are accustomed to seeing their returns improve or diminish based on annual reports, the overall stability of the stock market, public announcements, strong quarters, and a host of other factors. Investors in the precious metals markets watch the spot price of their investments, which demonstrates how demand for that metal has caused the price to rise or fall.
Those who have been around the block for decades can hardly be faulted for favoring the stock market. For years, that was where the money was made. Anyone who was active in investing in the 1980s still sees it as the clearest, most impenetrable path to wealth in the country. Unfortunately for those people, time may well have passed them by. Those who always viewed an investment in gold or silver as a protection against inflation (rather than a viable way to make money) are forced to reexamine the performance of these metals in light of the recent Dow Jones Industrial Average and how the chart has performed against gold and silver.

Someone who began investing in the stock market in 2000 would have seen, on average, only a 10% return on his or her investment by the time 2012 rolled around. While this isn’t the disaster some financial pundits would have you believe (it has, after all, kept up with inflation and then some), it certainly can’t hold a candle to the historic performance of the Dow Jones, which used to give investors a rate of nearly 5% a year.

Of course, all of this would mean little if gold and silver couldn’t show a performance that improved upon the DJ. One cursory look at gold prices throughout the same period, however, shows that they can. From 2000 to 2012, gold has risen a startling 510%, leaving the stock market returns in the dust. Silver performed just as well, rising from approximately $5 an ounce in 2000 to over $30 an ounce in 2012.

Of course, this stark departure from what investors were used to seeing in the markets demands answers from financial gurus, who are more than happy to supply their opinions. Much of the dramatic shift came from the overall monetary policy of governments around the world. Starting with the U.S., governments began putting more cash into their economies, which inevitably forced the price of commodities such as gold and silver higher in response to the increased cash flow. Another cause is the volatility of the various trading markets, which sent investors looking for a safer, more stable place for their money. Historically, precious metals have always represented this stability.

Moving Beyond Gold and Silver
Wait a minute, you may be saying. You just told me to go beyond the stock market and consider investing in gold and silver! Now you’re saying to go beyond that? That’s right. Even those who have decided to include a healthy gold and silver investment strategy in their portfolio need to consider moving into additional precious metals. Metals like palladium and platinum don’t have the public cachet of gold and silver, but they do have invaluable uses in the industrial world, particularly in the automobile industry. Palladium is an important element in developing catalytic converters, without which an automobile isn’t going anywhere. Platinum, in limited substitutions, is used in the same application, though it is also seen in the development of jewelry and even electronics.

Diversifying beyond gold and silver isn’t just about making sure your investment portfolio includes platinum and palladium, of course. Those are just two (currently very viable) examples among many. Precious metals, just as stocks, should only incorporate a portion of your overall investment scheme. That said, you wouldn’t go wrong by making it an important part. By using an online source such as the invaluable Monex, you can get all of the information you need about getting started with investments in gold, silver, precious metals, palladium, coins, platinum, and more.

Steer clear of the hype. The world economy isn’t going to crash tomorrow, leaving you only with your precious metals to buy bread while zombies overtake the earth. As with any investment strategy, the wise investor will spend a considerable amount of effort in researching his market. That said, every moment you remain in only one market is another moment you risk missing out on what could be a very profitable diversification plan. Take your time, do your research, but don’t miss out on a golden opportunity because you’re afraid to act.